"Bulls and bears aren't responsible for as many stock
losses as bum steers." --Olin Miller

Recently, a new client came in to meet with me. About to retire,
he wanted to be sure he could maintain his lifestyle with his
current investments. As he pulled out his retirement plan
statement, his whole demeanor changed. "I can't believe
I've left all this money in a money-market fund for the past
six years," he said. "I could have done so much better if
only I had invested a little of it in the stock market. I was just
so afraid of losing it that I didn't do anything."

Certainly, this investor was justified in his fear of market
fluctuations. There's always some measure of risk when
investing in stocks--and a chance you'll lose money.
Unfortunately, however, thanks to the bite taken by inflation and
taxes, you can also lose purchasing power in money-market funds and
similar investments. Our investor didn't realize his
money-market fund was neither insured nor guaranteed by the U.S.
government. And there's no assurance such a fund will maintain
a stable net asset value of one dollar.

The moral of the story? To retire in the style to which he's
accustomed, our investor may be forced to work longer or to invest
more aggressively than he might have had he included a partial
investment in stocks in his portfolio from the start.

Wouldn't it be nice to learn from someone else's
mistakes for a change, or at least to avoid making the same
mistakes twice? With that in mind, here are eight of the most
common errors made by astute (and some not-so-astute) investors.
Tally up how many of them you've made, and review the sections
you're weak in. If you tick off fewer than two, consider
yourself an expert; three to five, you need some help; six to
eight, it's time to brush up on the basics of personal finance!
Read on to see how you fare.

Lorayne Fiorillo was an Entrepreneur columnist for
five years. A senior vice president at a major brokerage firm and a
financial advisor since 1986, she currently manages over $120
million in assets for more than 600 clients.

1. One-Stock Investing

Everyone's heard the one about the stock inherited from
grandma that began as a few measly shares and, through dividend
reinvestment (and divine neglect), is now worth hundreds of
thousands of dollars. The stock shares are like the Energizer
bunny...they just keep going and going, and presumably they always
will. Or will they?

Whether you're holding shares of a tobacco company, a
soft-drink purveyor or a software developer, if this is the
dominant position in your portfolio, consider selling a few of
those shares and diversifying. (Before you do, however, be sure to
check with your tax advisor.)

It's a strange but common phenomenon that the person doing
the selling usually values an item at a higher price than the one
doing the buying. If you're holding shares of a stock because
you can't bear to part with them, consider what might happen if
their value were cut in half. If such a situation wouldn't be
devastating to your finances, hold on, but if just the idea of it
is making you sick, lighten up your position.

2. Sticking To Hot Funds

If you're seeking a few good mutual funds and have set your
sights on a few of last year's hottest properties, look before
you leap. In many cases, last year's top performers will be
funds of similar style and market sector, which means they'll
probably all move in the same direction--not bad if that direction
continues to be up, but no fun if things go the other way. That old
saying, "Past performance is not an indication of future
returns," is especially meaningful here, as the performance of
investments over time shows a regression toward the mean. In other
words, investments that show far superior performance will tend to
cool off while less-than-stellar funds may pick up the pace over
time. Worse yet, a hot fund could cool off just as you're
getting into it.

Consider looking for fund managers with good long-term track
records whose funds are out of favor (and therefore aren't
winning any popularity contests). By selecting funds that are out
of sync with the current best and brightest, you'll have the
chance to get in early.

3. Failing To Sell High

How difficult can it be to buy low and sell high? For many of
us, it's next to impossible. It seems that lots of folks (your
brother-in-law, your golf buddy, even your broker) can tell you
when to buy a stock, but few can tell you when to sell. See if this
sounds familiar: You buy shares in a stock you like, and the price
begins to rise. It continues to rise until you have a profit of
more than 20 percent. You're now faced with a classic dilemma:
Do you stay or do you go? Unfortunately, no one has a crystal ball.
You may have a pharmaceutical company with the cure for cancer on
your hands--or maybe it's just a rash. There's no way to
know for sure.

One possible strategy? When buying, set a target price at which
you'd be happy to sell. When your shares get there, re-evaluate
your decision. If you'd buy the stock anew at the higher price,
there may still be some room left for more appreciation. Consider
buying puts (options to sell) or entering a stop-loss order (an
order to close at a set price) to protect your profit. If you sell,
don't look back unless the price falls to a point where you
want to pick it up again.

4. Relying On P/E Ratios Alone

If you lean toward value investing, one of the things you look
for is a low price-to-earnings, or P/E, ratio--but it may not make
sense to find those stocks whose P/Es are at their lowest
historical level. Such stocks may have sunk for a reason, and they
may be slow in returning to health. Instead, consider stocks with
P/Es that are low relative to companies in the same industry but
have had positive earnings in recent quarters. These stocks are
more likely to rebound and make money than those that are really in
the bargain basement.

The same goes for evaluating a mutual fund. While the names of
some funds suggest they are value types, they may be investing in
many momentum stocks (any fund that performed well in 1998, for
example, had a large dose of technology stocks in it, no matter
what the fund was called). Check its annual reports to be sure your
fund provides the style you seek.

5. Watching Too Closely

What's the first thing you do in the morning? If you switch
on CNBC, get your fix of The Wall Street Journal or check your
stocks on the Internet before pouring your coffee, you might be
obsessing over the stock market. Although such diligence could lead
to profits, it could also lead to needless worry, panic and way too
much trading. Pay attention, but don't be too anxious.

Worse still is letting those talking heads go to your head. By
the time you've heard it on national news, you're hardly
the first to act. A lot of financial information is just
that--information. Interpreting that information is what separates
winners from losers. Unless you're a very experienced trader or
plan to make trading your full-time occupation, resist the
temptation to day trade. This isn't investing; it's
gambling. And while it may be an avocation for some, it's a
dangerous addiction for others.

6. Not Looking Long-Term

If Bill Gates hadn't known where he wanted to go, he might
have ended up somewhere else. The same goes for your portfolio. If
you're saving for a goal that's five, 10 or 20 years away,
your reactions to the market's fluctuations won't be the
same as if you were focused on speculation and short-term gains. If
high-priced stocks have you spooked, consider making small
purchases on a consistent schedule. You could be in a better
position to take advantage of the market's fluctuations without
a lot of headaches.

Also avoid the all-too-common mistake of ignoring your IRAs.
Many investors pay too little attention to these beautiful
accounts. Some people scatter them about, earning a meager interest
rate because the bank or brokerage firm had an offer that was too
good to pass up at the time. That toaster you got is probably
obsolete, but so might be the IRA that came with it. Consider
consolidating these accounts and making them a vital part of your
financial program.

7. Letting Portfolios Fall Stagnant

Despite what the pundits say, average annual returns of 20
percent are not an inalienable right. The past several years have
proved to be remarkable, but that doesn't mean the bull will
run forever. But it doesn't necessarily mean the market will
crash either. To paraphrase Yogi Berra: Investing is 90 percent
mental--the other half is monetary. Babe Ruth had one of the finest
batting averages in history, and even he struck out sometimes. So
if you expect your portfolio to swing for the fences every year,
you'll probably end up in the minor leagues. Give your
portfolio a break by periodically rebalancing your assets.

8. Taking Advice From Bad Sources

While a stockbroker may have an insurance license and an
insurance agent may be fluent in mutual fund lingo, these areas are
too complicated and change too quickly for anyone to be an expert
in both. Think of it this way: If you broke your arm, would you
call a veterinarian? While he could probably set your limb, your
fur may never grow quite the same way. By acting as a consultant,
your financial advisor can help you reach your goals more
efficiently and with a lot fewer mistakes than a specialist.

You should be equally careful about what advice you take from
investment newsletters. While some provide substantial expert
advice, others are worth less than the paper they're written
on. Check a writer's track record before
"subscribing" to their ideas.

New Blood

Have too much riding on one stock? Variations on this theme
include keeping too much company stock in your 401(k) plan or
holding off too long to exercise options. The key to avoiding this
mistake is "diversifying to conquer."

Hit The Books

Though you may not agree with all his ideas, check out 25
Myths You've Got to Avoid If You Want to Manage Your Money
Right by Jonathan Clements (Simon & Schuster). Clements
breaks open many cherished theories on managing personal finances,
and his style will make you alternately cringe and laugh.

Look Ma, No Hands

There are several ways to consolidate IRA accounts. Rollovers,
allowed once per year, entail taking receipt of the funds and
transferring them to another institution within 60 days. This
method of consolidation generates a notice to the IRS, so be sure
you keep your paperwork in order; you'll need it if
questioned.

With a direct transfer from one custodian to another, assets
never touch human hands (at least not yours), and the IRS
doesn't usually receive a notice. Make your life easier, and
let your new custodian's fingers do the walking.

You Talking To Me?

Got a hot tip from a voice on the radio? A talking head on TV? A
nom de plume on the Internet? Be wary of "expert advice"
and "inside tips" from these sources. Just because
it's financial advice doesn't mean it's appropriate for
everyone.